NEW YORK (CNNMoney.com) -- General Motors returned to profitability in the first three months of the year, the automaker reported Monday. It was GM's first profit since 2007.
GM, which emerged from bankruptcy last July, earned $865 million on revenue of $31.5 billion. A year ago, GM's predecessor company lost nearly $6 billion on revenue of only $22.4 billion, as sales plunged and the company hurtled toward bankruptcy.
GM had reported losses the two previous quarters since emerging from bankruptcy. But the profit in the first quarter was expected.
The company was able to cut costs as part of its bankruptcy reorganization. Sales have also improved due to an improving U.S. economy and problems at Toyota Motor (TM).
Worldwide vehicle sales jumped 24% to 1.9 million vehicles, as sales in the U.S. rose 15% and sales in China surged 71%. GM also had free cash flow of $991 million in the period, leaving it with $35.7 billion in cash on hand.
"We're pleased with our first-quarter performance, in particular achieving profitability," said chief financial officer Chris Liddell in the company's statement. "We're also steadily growing in emerging markets, keeping our costs under control, generating positive cash flow and maintaining a strong balance sheet."
Meeting with reporters in Detroit, Liddell said he was reasonably confident that GM would be profitable for the full year.
GM's North American auto operations swung to an operating profit of $1.2 billion, compared to a loss of $3.4 billion in the fourth quarter of 2009. Europe, where GM is still in the process of reorganizing, trimmed its loss to $506 million on an operating basis, down from a loss of $814 million at the end of last year.
The company's international operations, which include overseas units other than in Europe, earned $1.2 billion, an improvement from the $738 million it made at the end of last year. Sales in that unit rose 45% from a year ago.
"It makes sense that GM is still a little behind their competitors," said Rebecca Lindland, an analyst at IHS Global Insight. "The key will be the next quarter results, when we see sales growth slow in China and sales start to fall in Europe."
Still, the return to profitability is an important first step for the company being able to sell shares in an initial public offering, and for taxpayers to get back some or all of the $50 billion in bailouts the automaker received last year.
GM repaid its government loans in April, but most of the help was in return for Treasury receiving a 61% stake in the automaker. A sale of stock and a strong earnings stream are necessary for the government to get that money back.
GM had previously said it hoped to be ready for an IPO by the end of the year, but that timing would depend on both profitability and market conditions. Liddell wouldn't give any further guidance on the timing Monday.
"Making a profit in the the first quarter means we're better off than we would have been otherwise," he said on the conference call. "That's heartening. I wouldn't take too much from that. The IPO will happen in good time when the company is ready and the market is ready."
Kyle Bass is the founder and chief investment officer of Hayman Capital Management. More
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